Liquidity in Nigeria’s banking sector has surged significantly, reaching ₦1.2 trillion, marking a 62.4% increase on a week-to-week basis, according to a report from Afrinvest. This rise is largely attributed to strong inflows from the Central Bank of Nigeria’s (CBN) Standing Lending Facility, which totaled ₦2.8 trillion, alongside Treasury Bills (T-bills) maturities amounting to ₦402.2 billion.
Afrinvest noted that these inflows far outpaced the outflows seen via the Standing Deposit Facility, which recorded ₦566 billion. System liquidity refers to the availability of cash and liquid assets in the banking sector, influencing banks’ ability to lend and invest.
The CBN’s Standing Lending Facility allows commercial banks to borrow short-term funds to manage liquidity, while the Standing Deposit Facility is used by banks to earn interest by depositing excess reserves with the central bank.
As a result of the increased liquidity, key interbank rates saw a decline. The overnight policy rate fell to 29.70%, and the overnight negotiated rate dropped to 29.97%, compared to 31.20% and 31.73%, respectively, from the previous week.
In addition to the liquidity boost, the bond market saw a wave of positive sentiment. Domestic bonds and corporate Eurobonds performed well, with strong buying interest driving a decrease in average yields across tenors by 16 basis points to 18.4%. Short-dated bonds were the most sought after, with yields dropping by 33 basis points. Mid- and long-dated bonds also saw yield reductions of 24 and 2 basis points, respectively.
Afrinvest’s report highlights an improved environment for investors, fueled by rising banking liquidity and favorable bond market conditions.
In a related report, The Punch revealed that banks and discount houses borrowed ₦3 trillion from the CBN through the Standing Lending Facility the previous week, while depositing ₦493.6 billion through the Standing Deposit Facility. This contributed to a 4.7% rise in overall system liquidity.
